Monday, October 26, 2015

Today's Headlines

  • Refugee Influx ‘Absolutely Unbearable,’ Slovenia Says. The influx of refugees into Slovenia is “absolutely unbearable,” Prime Minister Miro Cerar said, warning that the surge in migrants risked tearing apart the European Union. Slovenia “has received more than 60,000 migrants in the last 10 days, 13,000 in one day,” Cerar said at a meeting on Sunday in Brussels to seek ways to deal with the increasing flow of refugees through the Western Balkans. The government last week called on the army to help control the situation at its border. “If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart,” Cerar said. 
  • German Business Confidence Falls as Global Risks Take Toll. German business confidence fell for the first time in four months in October, signaling that a slowdown in global demand is taking its toll on Europe’s largest economy. The Ifo institute’s business climate index declined to 108.2 from 108.5 in September. The median estimate was for a drop to 107.8, according to a Bloomberg survey of economists.
  • Korean Shipyards -- Afloat, But Taking On Water. Things had been looking more hopeful for Korea's three largest shipbuilders, until today. After seven consecutive quarters of losses, analysts reckoned that earnings before interest and tax at the world's biggest shipyard -- Hyundai Heavy -- were going to turn positive in the three months to Sept. 30. Um, that didn't happen.
  • MidEast’s ‘Grossly Mispriced’ Bonds Warn of Shifting Sentiment. Corporate bonds aren't reflecting the effect of low oil prices on regional budget deficits. Middle East corporate bonds are mispricing the effects plunging oil prices are having on the region’s finances, leaving borrowers vulnerable to a deterioration in market sentiment. The average premium investors require to hold bonds from the Middle East and North Africa was 159 basis points on Friday, two points lower than this year’s high in June, JPMorgan Chase & Co. indexes show. That compares with 165 basis points on US investment-grade debt, according to the Bloomberg US Corporate Bond Index. 
  • Real Drops With Brazil's Woes Offsetting Emerging-Markets Rally. Brazil’s real declined as concern that the nation’s fiscal picture is worsening outweighed investors’ optimism over emerging markets. Brazil’s government, which previously targeted a so-called primary surplus, may announce by Tuesday a budget deficit excluding interest payments of as much as 50 billion reais ($13 billion) this year, O Globo newspaper reported, without saying where it got the information. That would be the widest on record. The pessimism overwhelmed optimism on global growth generated by China’s move to cut interest rates and signals from the European Central Bank that it could act to stoke the economy. The currency dropped 0.2 percent to 3.8820 per dollar at 2:37 p.m. in Sao Paulo after gaining as much as 1.3 percent.
  • Aussie Weakness Signals Diminishing Returns of Chinese Stimulus. If the Australian dollar’s performance is any guide, Chinese monetary stimulus faces an uphill battle to reverse the economic slump that’s driven down the prices of commodities and the currencies of nations that export them. The Aussie, used by some to express their outlook for the world’s second-largest economy, weakened immediately after the People’s Bank of China on Friday reduced its benchmark lending rate and had failed to recoup those losses by late afternoon on Monday in Sydney. It has dropped 16 percent since the PBOC began its current easing cycle in November 2014, compared with a 3.6 percent advance during the previous stretch of rate cuts.
  • The Dollar Ate Our Profit Is Lament of Delta(DAL), Mattel(MAT), Whirlpool(WHR). U.S. companies that blamed billions of dollars of lost revenue in the first half of the year on the greenback’s meteoric rise are signaling that the trend isn’t getting any better. Delta Air Lines Inc. said this month that losses on revenue denominated in yen cost the company $55 million. Toymaker Mattel Inc. said foreign-exchange headwinds were the primary cause of its weak third-quarter earnings. And Whirlpool Corp. said Oct. 23 that the stronger dollar will reduce 2015 revenue by more than $2.5 billion. Two out of three companies in the Standard & Poor’s 500 Index that reported earnings through Oct. 22 mentioned the strong dollar or currency-related woes in conference calls with analysts and investors. 
  • European Stocks Take a Breather, Falling From a Two-Month High. (video) European stocks halted their rally as investors assessed the implications of central-bank stimulus. The Stoxx Europe 600 Index lost 0.4 percent to 375.89 at the close in London, sliding after a three-week jump, its longest stretch since March.
  • Oil Speculators Make `Easy' Bearish Call at 85-Year Supply High. Hedge funds placed the most bets on falling oil prices since July as rising piles of crude dashed hopes of a near-term recovery. Money managers’ short position in West Texas Intermediate crude jumped by 18 percent in the week ended Oct. 20, the largest surge since July 21, according to data from the Commodity Futures Trading Commission. That pulled their net-long position down by more than 16,000 contracts of futures and options. 
  • Hurt by Energy, Einhorn's Greenlight Re Hedges Oil, Natural Gas. David Einhorn is revisiting page one of the hedge fund playbook: he’s hedging. In the midst of his worst year since the financial crisis, the money manager added derivatives positions that would protect against a further decline in natural gas and an increase in the price of oil. The contracts were disclosed in a filing on Oct. 23 by Greenlight Capital Re Ltd., after the reinsurer said its third-quarter net loss quadrupled from a year earlier.
Wall Street Journal:
  • Sam Zell Edges Out of Apartments. Equity Residential(EQR) agrees to sell some apartments for $5.4 billion to Starwood Capital. The transaction, announced Monday, represents about a quarter of the units in Equity Residential’s portfolio of apartments and would be one of the largest since the recession.
Zero Hedge:
NY Times:
  • Russian Ships Near Data Cables Are Too Close for U.S. Comfort. Russian submarines and spy ships are aggressively operating near the vital undersea cables that carry almost all global Internet communications, raising concerns among some American military and intelligence officials that the Russians might be planning to attack those lines in times of tension or conflict.
Seeking Alpha:
The Economist:
  • Debt in China. Deleveraging delayed. Credit growth is still outstripping economic growth. Bank loans increased by 15.4% in the third quarter compared with the same period in 2014. Having released a torrent of credit to buoy the economy during the financial crisis, China was supposed to have started deleveraging by now. Instead, banks are continuing to pump debt into the economy, while the authorities, apparently worried about the damage a contraction in credit might do, coax them on.
  • Bridgestone to buy U.S. auto parts retailer Pep Boys(PBY). Japanese tire maker Bridgestone Corp (5108.T) said it would buy auto parts retailer Pep Boys-Manny, Moe & Jack (PBY.N) for $835 million to expand its retail presence in the United States. The deal will boost Bridgestone's retail network by more than a third in the United States, the company said.

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